When Should You Pay a Balance Transfer Fee?

When you are whittling away at credit card debt, a high interest rate can make it seem like the balance barely budges from month to month. Balance transfer credit cards offer a solution, but not all of these cards are the same. Some come with a transfer fee, and depending on your current balance and interest rate, moving the debt to a new 0% credit card may not be worthwhile.

Determining when a balance transfer fee makes sense involves a little bit of math, but it’s nothing you can’t handle.

How much does it cost to transfer your balance?

Balance transfer credit cards offer consumers a way to roll their debt onto a card with a lower interest rate than they’re currently paying. Generally, these cards offer a 12- to 18-month period during which the debt doesn’t accrue interest at all. Smart consumers use this time to pay off a balance and potentially save considerably over what they would have paid on an average interest rate card.

Some, but not all, of these balance transfer cards come with a transfer fee. That’s where the bank charges you a percentage of your balance to move your debt. The average balance transfer fee is 3% to 5%.

So, if you have a nice round credit card balance of $10,000 and you want to move it to a 0% interest balance transfer card with a 3% balance transfer fee, it would cost you $300 to make the switch. While that seems like a lot of money, it could be worthwhile.

When to move your debt

All other things being equal, if the interest your debt would earn on your current card is more than what you’d be charged in a balance transfer fee, it makes sense to open the new account and move your balance over.

For example, if you carry an average daily balance of $10,000 for the entire year, at 15% interest, you’ll have accumulated $1,496.50 in interest by the end of the year. Because this is significantly more than the $300 balance transfer fee, even if the introductory 0% interest only lasts for 12 months on your new card, transferring the balance would be worthwhile.

Need help calculating the interest earned on your credit card balance? See here.

Getting the most out of a balance transfer

Getting the most out of your new balance transfer card means paying down your debt to make the move worthwhile. This likely means you’ll need to allocate more than the minimum payment toward the balance each month, especially if you’re dealing with a large debt.

Keep in mind, some issuers retroactively apply the interest you would've accrued to your balance if you don't pay the amount transferred before the interest-free period expires. For these cards, failing to pay it off in time could negate any benefits of moving the balance.